How mutual funds create wealth, support infrastructure

Investments in mutual funds have been described as a veritable tool to the creation of wealth, expansion of business operations and needed capital for the development of critical infrastructure in Nigeria.

Besides making liquidity available in the system, mutual funds offer a range of benefits to investors, including portfolio diversification and lower transaction costs, while increasing returns.

A mutual fund is a pool of funds brought together by a professional fund manager from several investors to invest in selected underlying securities.

The Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, in a note to The Guardian, affirmed that proceeds of mutual fund can be channelled to address critical infrastructure either directly or indirectly.

“This would promote the competitiveness of the economy, enabling businesses to expand operations and employ more people, and would assist government at all levels in generating more tax revenue,” he said.

However, analysis by FSDH Research observed that mutual funds need more support than is currently available from the government, regulators and operators in investment management, to enable potential investors to fulfil their wealth creation and developmental roles.

“Government could offer tax incentives to investors who are committed to a regular investment plan in mutual funds. It could also create an enabling environment that will lead to job creation in the country in order to increase savings and investable funds.

“Regulators could promote innovative legislation to increase investment in mutual funds and expand investment channels to increase returns on the funds invested.

“The existence of a Trustee and Custodian to a mutual fund ensures the safety of investments. As the Trustee ensures that the fund is managed in line with approved investment guidelines, the Custodian holds the fund assets,” the research noted.

According to the research, Fund Managers Association of Nigeria (FMAN), should intensify public awareness on the benefits of mutual funds to generate adequate interest from the investing public.

It noted that the mutual fund assets in Nigeria have grown significantly in the last five years, an indication of the growing interest in this class of investment, adding that there is significant room for growth in mutual fund assets, as the ratio to the Gross Domestic Product is estimated at paltry 0.51 per cent.